Tax avoidance among Government workers is a 'shambles'

Tax avoidance among senior Government workers is a “shambles” but clamping
down on the practice may mean paying top staff more, a union leader has
warned.

A “full audit” is now being conducted by the Treasury into the arrangements for the staff who worked in a range of areas in the NHS.Photo: GETTY

11:11AM GMT 16 Feb 2012

Jonathan Baume, general secretary of the First Division Association (FDA) which represents senior civil servants, said pay among the highest-ranking staff needed to be more "transparent".

His comments come after it was disclosed that more than 25 senior Department of Health officials have had their salaries paid to limited companies, enabling them to reduce their tax bill.

However, Mr Baume said he believed such arrangements had allowed the Government to pay senior figures less and that cleaning up the system would mean salaries would have to rise.

He said the problem stemmed from the last years of the Labour government when ministers wanted to attract top individuals working in the private sector but could not offer them salaries which compared favourably.

Speaking on BBC Radio 4's Today programme, he said: "What we have found is that in certain cases, because the market rate was so much greater than the salary that would have been offered in the civil service, various deals were being done and some of these are now being exposed.

"So I do think we now need to be very transparent and very clear that this cannot continue but at the same time grasp the very difficult political nettle, which is to address the problem of pay at senior levels of the civil service. Frankly, it's a shambles... ministers are going to have to raise the salaries."

The Government is reviewing pay for senior mandarins after it was revealed last month that Ed Lester, head of the Student Loans Company, was paid via a third company to avoid being taxed at source.

A review was subsequently launched to investigate senior directors' pay within Whitehall and at arm's-length quangos.

Treasury Chief Secretary Danny Alexander and Cabinet Office minister Francis Maude have written to all Government departments asking them to examine their reward structures as part of a clampdown on excessive bonuses.

The Guardian claimed today that the salaries of more than 25 senior staff at the Department of Health are paid direct to limited companies.

In some cases, the newspaper claimed, individuals are being paid more than £250,000 a year, plus expenses. The payments total more than £4 million in one year.

The department apologised for any “misunderstanding” after previously specifying that none of its civil servants were paid through limited companies.

One Whitehall source said: “We cannot defend these arrangements, but it may be it is very common in Whitehall and this is just the tip of an iceberg.”

According to leaked internal documents, the health staff earned almost £4.2 million in one year for their work with the department.

One contractor is said to have earned £273,375, while a further 19 officials were paid more than £100,000.

The majority of the “limited companies” are registered as business and management consultancies.

The arrangements would enable those involved to save thousands of pounds a year in income tax and National Insurance contributions because they would be taxed at the corporation tax rate of 21 per cent.

They would not, however, have received pension payments, holiday pay or other benefits.

In most cases, the fees were paid to companies that had listed the same address as the home address of the staff members, none of whom have been identified.

The internal DoH payroll information, also shows civil servants discussing how to cover up the arrangements.

In response to questions from Gareth Thomas, the shadow Cabinet Office minister, in December, Simon Burns, the health minister, replied that no payments were made to civil servants through limited companies in lieu of salary.

Mr Thomas said he would seek clarification from Andrew Lansely, the Health Secretary. On Wednesday night a DoH spokesman apologised for the misleading information.

She said: "We can confirm that no civil servant who is an employee of the Department of Health is paid in this way. To this extent it was certainly not our intention to mislead anyone involved.

"We would be happy to clarify the situation in greater detail with anyone who asks and apologise for any misunderstanding involved.

"We are currently carrying out a full audit of such arrangements in line with the recently announced Treasury review of tax arrangements of public sector appointments."